AAPL analysts: pros' telescopic aim low, blogs' eyeball aim true

Tomorrow Apple will report its financial results for Fiscal Q4 2011. My estimates were published a couple weeks ago. Most savvy AAPL investors already know what to expect thanks to the excellent work of Apple 2.0's Philip Elmer-DeWitt, in compiling and contrasting all estimates made by professional analysts working for the biggest banks, brokerages, and financial research institutions, as well as those made by independent (aka bloggers or "amateurs") AAPL analysts.

PED - Our Apple whisper numbers

These days the gap between these two types of analysts has grown immense. According to Yahoo! Finance, Wall Street analysts are expecting EPS of $7.28 on $29.45b in revenue, on average, while PED's compilation of pros shows an EPS average of $7.31. But the 16 independent bloggers/amateurs he polled are expecting EPS of $9.07 (24% higher than pros) on $33.47b in revenue (a cool $4b higher), on average. For the last few quarterly "smackdowns" pitting bloggers vs. pros, PED's been using a "two billion gap" mantra in his titles, which already seemed preposterous. Well the gap has now widened to $4b and it seems to me this trend will continue.

PED - Wall Street still doesn't understand Apple
PED - Bloggers vs. Pros on Apple's Q3: Yet another $2 billion gap

Most financial websites which provide stocks' forward-looking valuation information do so based on Wall Street's professional analysts data. This means widely quoted forward P/E multiples you'll see in almost every article panning (or even recommending) AAPL as a potential investment, are blindly following the blind. Fortunately we have PED's work and the couple dozen independent analysts trying to get a better sense of AAPL's financial performance, and most importantly, sharing and publishing the results.

FY2008: Q2, Q3, Q4
FY2009: Q1, Q2, Q3, Q4
FY2010: Q1, Q2, Q3, Q4
FY2011: Q1, Q2, Q3

Pro analysts' "lazy eye" - charted

Sorry for taking so long to post about Apple's fiscal 2Q 2011 results. By now everyone surely has all their answers, so I'll keep it short (and you can get the gritty details in the tables below). Compared to my estimates, a huge iPad miss ($1.6b) partly offset by iPhone upside ($1.1b), among lesser effects, resulted in almost $600m revenue miss. All of it was made up through lower costs hitting operating income within 0.2%, and nailing pre-tax income. Slightly lower tax rate and share dilution than expected resulted in EPS 8 cents (1.2%) higher than expected. All margin ratios were slightly better than expected. Revenue guidance roughly inline but EPS guidance significantly higher than expected, which suggests continued high margins. Here's all the details:

Which analysts are the biggest sandbaggers - charted

Over the past year or so I've been tracking all of us analyst performance in forecasting Apple's financial metrics, and ranking us based on the 6 or 7 categories of estimates compiled by Fortune's Apple 2.0 blogger Philip Elmer-DeWitt, and the outcome has always been a consistent underperformance by pros (see here, here, here and here). The comparison and friendly "competition" has almost become laughable, if it weren't for the serious amount of capital that these "professional" analysts look over, and thus the effect of their cluelessness on Apple's share price gets felt.

However, all this time I've been applying a somewhat forgiving methodology on my rankings. By averaging out all the categories with equal weights, the resulting score improperly reflects the relative importance and sensitivity on the stock price of these variables. It should be clear to all investors that forecasting earnings and revenue is most critical, while the number of iPods sold has very little effect (for quite a few years now) on Apple's financial performance. Yet by applying the same weight to these, the effect of the most important metrics gets watered-down by the less important ones so the analyst scores and thus the rankings do not reflect what investors should be focusing on out of all the stuff analysts throw out there.